Investor Resources
Auction vs Private sale
Private Sale
This means the property is purchased through a real estate agent or directly from the owner. When buying this way you have to agree to a specific price set by the seller. Most asking prices do have a buffer amount for negotiations, so try and determine the lowest price the vendor is willing to sell at. Never let the agent know the maximum you are willing to spend. It can be useful to know why the seller is selling, sometimes the motivation can help determine your negotiation strategy.
You can add conditions to your offer, experienced investors usually have a set of standard conditions they include. You should determine the correct wording and content with your legal advisors. These might include that the offer is conditional on a building report or on the gaining of funds agreeable to the buyer.
If your offer is accepted, ensure you obtain written acknowledgement of this fact, by signing a Contract of Sale or Contract Note (Victorian only). The Contract should set out the agreed price and all terms and conditions. At this stage you will most likely have to pay a holding deposit.
Auction
The rule for auction is to be prepared, so it is a good idea to attend several auctions before participating in one. You should be able to anticipate the auction result to within 5% if you have done your research. If you are going to bid, you may have to register. You should also be certain that you know what you are getting hence you should have pest and building inspections done prior to auction.To know what you can spend you should have a written loan approval prior to the day of the auction.
If the final bid falls short of the reserve, the property may be passed in. You may then enter into negotiations with the agent, by approaching them immediately following the auction. Alternatively, the vendor may agree to sell at this lower price, at which time the property is said to be 'on the market' and the auctioneer may attempt to extract more bids prior to making the sale.
You will usually have the opportunity to make an offer on a house before its auction date. The agent can tell you the price the property is expected to reach at auction, but keep in mind that the agent may lower the reserve figure in an effort to get you to attend the auction, there are now more restrictions on agents in doing this however it can still happen.
Most importantly, have a price limit fixed firmly in you mind and DO NOT exceed that limit. Some people even ask others to bid on their behalf so as to avoid making hasty, emotional decisions. If you do this, ensure that the purchaser name given to the auctioneer is the name that will go on the contract, as this cannot be changed.
There can be less movement for you at auction in adding conditions and if you do want to do this you should speak to the auctioneer before the auction.
The Holding Deposit
Payment of a holding deposit occurs once the vendor accepts your offer/bid in writing. Legally you do not have to pay this deposit, however it has become an act of good faith.
The amount can be anywhere between a couple of thousand to 10% of the total purchase price. This deposit is refundable in full should the sale not proceed (referred to as the cooling-off period). (Western Australia does not have a cooling-off period.) The balance or difference between the agreed price and the deposit, should be paid upon settlement and possession of the property.
If you buy a house through auction, you will have to pay this deposit immediately. If however you purchase by private treaty, the deposit should be paid upon exchange of contracts, or signing of the contract note in Victoria.
Signing a Contract Note (Victoria only)
In Victoria a contract note will be prepared when you agree to purchase a property through private treaty (i.e. not at auction). This contract is an offer by you to the vendor to buy the property at the agreed price and under the terms detailed. Special conditions can be included by you such as:
- Purchase conditional on the sale of an existing property,
- Purchase conditional on a loan approval,
- Purchase conditional on a satisfactory property inspection.
Once you and the vendor sign this contract, it is then binding and you and the vendor will become bound by the terms and conditions of the contract.